We’re addicted to debt and headed for
a crash. It could be worse than 2007
Zoe Williams
Ten years ago the culprit was
sub-prime mortgages. Personal credit is out of control in Britain now. We seem
to have learned absolutely nothing
Monday 4 September 2017 06.00 BST
When Provident Financial lost £1.7bn in share value a little
over a week ago, a handful of people asked whether this was a Northern Rock
moment. The Provident extends high-interest loans to low-income people, and as
such could be seen as a bellwether in the manner of a sub-prime mortgage
company, the first to go under when debt becomes unbearable, the signal that
credit is, once again, about to crunch.
The immediate anxiety, voiced by the economist and Green
party MEP Molly Scott Cato, was that the financial system may have done
something perilously stupid. Again. “If they’re bundling up these assets and
selling them on, that will be much more serious,” she said. This is, of course,
what determined the depth of the last crash, the wheeze of the collateralised
debt obligation, which left no one able to distinguish between a good debt and
a bad one. Ten years on from the start of the crash, we could get bitten by the
same manoeuvre that everybody has spent the past decade saying was a terrible
idea.
Yet financial recklessness would only be kerosene on an
already-lit bonfire: the real threat of a recession is not from a few bad debtors
bringing down a system that is unable to disaggregate them from all the other,
decent debt. It might be helpful to discard the terms “good” and “bad” just to
lay this notion to rest, that some people are a good bet and others aren’t. The
real problem with debt is that there is just too much of it.
Provident, incidentally, told a different story about its
doldrums: it had dallied with some automation – replacing doorstep lenders with
iPads – and it didn’t come off. In the quest for the ever-cheaper employee, it
underestimated how much its business relied on human judgment. This is
plausible: and I don’t just choose to find it so because it kicks against the
prevailing narrative that only employers create wealth, and employees are
dispensable drones, waiting to be rationalised into cheaper, zero-hours drones.
Morses Club is a very similar business, and its share price hasn’t moved.
But if the debtors at the bottom aren’t at crisis point yet,
the signs of a surfeit of debt are everywhere. Alex Brazier, executive director
of financial stability at the Bank of England, warned last month that consumer
loans had gone up by 10% in the past year, with average household debt having
already eclipsed 2008 levels. He warned against the economy having to sit
through “endless repeats of the ‘Debt Strikes Back’ movie”.
There is something obscurely insulting about being warned
about household debt by the Bank of England
There is something obscurely insulting about being warned
about household debt by the Bank of England. It never warns employers about
stagnant wages, or the government about the benefit freeze. It only ever
mentions these in terms of the impact of inflation, as if any consideration of
the human decisions behind them are too political for comment. But personal
debt, miraculously, isn’t political at all.
But that doesn’t make Brazier wrong. Edward Smythe of the
campaign group Positive Money, breaks it down: “If you look at total
outstanding consumer loans, in July, they’re at £200bn, an £18.5bn net increase
every year.” Households spent more than their income by £17.5bn in the first
quarter of this year. Economists are interested in where that money comes from
– whether it’s access to credit, selling assets or spending savings. The
government is presumably, in some dusty corner, interested in why that money is
needed, whether it is a result of pauperised wages– real wage growth is
negative and looks set to decrease – benefit changes, or some rush of blood to
the head where we all suddenly need Sky Sports and cigarettes but aren’t
prepared to work for them.
The sources of all this debt are changing: about half the
net increase was in personal contract purchase car loans. Four in five new cars
are now bought by PCP – an inherently unstable system that leaves both
consumers and car manufacturers exposed. It’s a bit like a mortgage system for
cars, except you don’t own it at the end, ideally you wouldn’t be living in it,
and while a housing crash has been seen before, nobody yet knows what a car
crash would look like. Student loan debt is counted separately from consumer
loans, and stands at £13bn a year. However much you think you’ve accommodated
student fees into your picture of Britons’ finances, it is always astounding to
consider how life-changing that decision has been for the younger generation.
Other debts are lower in quantity but perhaps more telling:
problem gambling affects about 430,0000 people – a figure that has risen by a
third in three years – and costs public services, including mental health,
police and homelessness interventions, £1.2bn a year. Meanwhile, funeral debt
has reached £160m, with charities calling for a better social fund, coupled
with greater transparency on fees from funeral directors.
Expanding credit, as we know from the noughties, can make
economies look very healthy, generating spending and a certain devil-may-care
nonchalance, but not indefinitely. At some point, servicing the debt becomes so
onerous that discretionary spending becomes impossible. The classic
canary-in-the-mine watcher doesn’t wait for a bank collapse but simply looks at
the growth figures. That’s what led Credit Suisse to conclude in July that
Britain was “flirting with recession”, and had a 38% chance of a recession
within six months. Just on the balance of probabilities we are due a downturn –
no decade has passed without one since the 70s. Very few people, outside the
delusional bubble of Brexit enthusiasts, are forecasting much growth.
The grownups are starting to agree that this is merely the
way of the world: we have booms, we have busts – we endure. There is some kudos
to be gained from recognising and naming the first warning signs, and some
reputational damage to be done by naming them wrongly, too soon. Yet this would
not be recession-as-usual. The buildup of debt has come not from a decade of
living slightly too well, and ready to face the consequences: it has come from
a decade of stagnant wages and austerity.
Nobody could have predicted how much the last crash would cost
the taxpayer. But we know now, and that’s not all we know: we know that cutting
public spending causes untold hardship to very little discernible benefit; we
know that quantitative easing delivers its windfalls more or less entirely to
the top 5%, and if any government dealing with the next recession can even
afford monetary financing, it must be overt, and have a general, identifiable
social purpose. We also know that austerity comes with a narrative – the
demonisation of poverty – which has a catastrophic affect on politics.
We don’t need any ailing canaries to tell us there’s a gas
leak: we need to start asking how to escape this mine.
• Zoe Williams is a Guardian columnist
Sem comentários:
Enviar um comentário